Tuesday, March 14, 2006

Payday loan companies are often referred to as financial predators, taking advantage of the vulnerable. While lenders range in quality, as with any industry, there are clear signs of abusive lending in the payday advance business. Keep your eyes open for these signs and make sure you don’t get victimized. From the Center For Responsible Lending comes a list of Nine Signs of Predatory Lending:

– Out-of-state banks violating local state laws. Federal banking laws were not enacted to enable payday lenders to circumvent state laws, but a lot of corporations use them to avoid possible legal entanglements.

– Triple digit interest rates. Credit cards are known for their high APRs, but payday loan companies typically charge fees equal to 400 percent per year and higher. Lenders, by contrast, contend that their interest rates are necessary to counter the potential loss.

– Short minimum loan terms. About 75 percent of payday loan customers are unable to repay their advance within two weeks — the industry standard — and are forced to roll it over. Additional charges apply in such cases. In contrast, small consumer loans have longer terms, such as six months.

– A single balloon payment. Unlike most forms of consumer debt, credit cards included, faxless payday loans do not allow for installment payments to be made during the loan term. In many cases, the borrower must pay the entire loan back at the end of two weeks and cannot pay a partial sum.

– Loan flipping. Also known as extensions and payday loan rollovers, this refers to the practice of companies making multiple loans to cash-strapped borrowers. Approximately 90 percent of the payday advance industry’s revenue growth comes from issuing additional, larger loans to repeat customers.

– Borrowing from multiple lenders. Unable to make partial payments, many consumers get a loan from one payday cash loan firm to repay another, which can lead to even bigger monetary problems and a cycle of renewal fees that’s hard to ever break free of. Never do this if you can avoid it.

– Mandatory arbitration. Many payday loan firms will eliminate a borrower’s right to sue for abusive lending practices by including a clause to that effect as per the initial agreement. In this case, payday loan agencies exhibit even more control over the consumers they are supposed to help.

– No concern for the borrower. Avoid a payday lender that blindly encourages consumers to borrow the maximum allowed, regardless of bad credit history or their personal circumstances. Even if the borrower can’t repay the loan, the lender gets collects multiple renewal fees. Often times a payday loan is not in a consumer’s best interest, but the company won’t tell you that.

– The deferred check mechanism. Consumers are often required to write a post-dated (deferred) check to cover a payday loan at the onset. When they can’t repay it, they may be assessed multiple late fees and check charges, and even face criminal prosecution for writing bounced checks.

REMEMBER: If and when you are in the market for payday loans, protect yourself. Don’t make any sudden decisions that you will regret. Use caution with any payday lender to guard your consumer rights, and if you can, consider alternative financial solutions altogether.

This entry was posted on Tuesday, March 14th, 2006 at 2:59 pm and is filed under Advice.